Why is "Taxing and Spending" a bad thing?

@ Murgatroyd

Well you're certainly far more libertarian than I am, I prefer socialist spending in certain industries but that's beside the point here. I dropped my socialist ideological views a long ago for empiricism. "Do whatever seems to work best" basically.

I've mulled over the CEO salary problem a lot. I think sometimes I am misconstrued as saying those people aren't working hard but I'm more saying that their hard work is being overvalued compared to lower tier workers who are under-valued. If a company rolls in 11 billion in profit, and tripling the salary of every single engineer causes profit to dip to 10 billion a year... somebody isn't getting paid their fair share. But how would you solve that? I would agree, tax/spend isn't a very good solution at all. Government regulation? But then, what regulation?

I've thought of the government (taxing and) spending say 10 million dollars a year to create an "incubator" fund. It spends a million dollars on creating start-ups. After the start-up burns through the money, it either sinks or floats. The catch is that workers are paid based on company profit but it wouldn't necessarily be a co-op. Hence, if you create a software firm that produces a useful product that sells well, and due to profits, the individual workers are now raking in 200k each, that'll be incentive for major corporations to up their pay on useful employees or else lose them to government-funded start-ups with enforced profit-salary rule.

edited 22nd Sep '11 9:38:46 PM by breadloaf

There was a new law proposal in the Netherlands about capping the excessive wages of CEOs. It was something like: "In any corporation, the highest paid worker may not earn more than 10 times the wages of the lowest-paid worker".

So if you're paying the people who clean the office 8€/h, your CEO can't make more than 80€/h.

I think that sounds pretty fair, to be honest.

> As I understand it, one of the biggest reasons "Taxing and spending" is different than what corporations do because corporations cannot tax - they must turn to the government for enforcement of contracts. When someone shoplifts, they go to the city jail, not the store's jail. (And there would be something seriously wrong if the store had a jail.) The government, on the other hand, is its own enforcer. You can choose whether to buy from a corporation (not just which to buy from), but the only choice people normally get with stable governments is 'which one'. Granted, buying food is like that too, but the government is unique in that it is its own oversight, and the only court of appeal against the government.

This comparison not entirely fair. its comparing a single store with the "entire" government. Most government agency also don't have its own enforcement arm.And many government agencies have to go to court too.

If there are trouble on Veteran Hospital, the VA have to call outside police (probably local sheriff), and sue the trouble maker in non VA Court. In USA there are various government agencies, various level (county, state, federal) and various court. Government is not monolithic single organization, its consists of hundred of organization, with million of people, each have different goal.

The fair comparison is between single company and single agency. (Walmart vs NASA). or by comparing entire Libertarian economy with current economy.

The taxation problem (" what corporations do because corporations cannot tax ") is actually monopoly problem. If a single company control railroad (happen in Gilded Age), it is essentially have power of taxation. Farmer cannot refuse to pay tax to railroad company.

edited 22nd Sep '11 10:28:26 PM by PhilippeO

The issue of the value of work is an odd one. In some ways, the higher pay for upper-level jobs offsets the educational costs associated with becoming qualified for those jobs. The other side of this is "when someone has demonstrated their business acumen, and accumulated a quantity of money by doing so, and could make at least a comfortable living off of investing their money (and thus financing businesses and driving the economy, etc.), how do you get them to work for you?" The obvious answer is to pay them a great deal of money.

Government funding is necessary to get businesses up and running. When the google boys first came up with their idea, practically nobody thought it would be profitable, but they still got capital because they could persuade someone to put his money behind it. I've known people who either started or bought businesses, after persuading enough people and scraping together enough capital. The non-philosophical objection to the government providing money for startups is the whole "other people's money" thing. Officials are not as likely to evaluate businesses thoroughly/well, since they do not personally have a stake in the success or failure of the ventures, unlike private investors. Just look at the Solyndra debacle.

That doesn't sound like a bad option, if we're going to have regulation. And there's really no way to get around having some regulation. The earlier question about attracting people to work in high positions still applies, though. Another idea is to say that company leaders should be primarily paid in company stock options, which scale with the stock price (usually, though not always, an indicator of how well the company it doing).

You're right, but I think that you can't fully separate the government agencies since they derive their funding from the same source. I didn't think my statement through sufficeintly. My point about government as a monopoly was the strongest point. I was trying to point out how the governmental taxes are different from the money paid to corporations, not necessarily that one is better than the other for its intended purpose. Now that I've looked back over things, I'd have to say that the most noticeable difference is that there is little correlation between what you put in and what you get out. When you pay a company for a product, you get the product, hopefully in the color you ordered. When you pay taxes... someone gets something. For things like a legal system, and many other government duties, this makes perfect sense, since all citizens have the right to a trial.

Sorry if slightly incoherent - too late at night to think straight.

Not entirely true, there are actually VA Police Officers.

Thanks, Barkey.

http://en.wikipedia.org/wiki/Federal_law_enforcement_in_the_United_States

In fact, it seems that many departments have divisions with enforcement powers beyond that of the security guards a company would employ.

Yeah the problem isn't so much that people are making so much money (although that is a problem in other ways), the problem is that the labor market, especially on the lower rungs, hasn't really been competitive in decades.

That's been holding wages down. And at least in America, it's something that has been done on purpose, more or less, in the guise of fighting inflation. And that effect has been slowly creeping up the rungs, and it'll continue to, honestly, so something has to be done to change that.

Or you can say screw it, that fighting inflation is that important, and because of that a robust safety net is required. But to say the first without saying the second?

Quite frankly that's just being a jerk.

I like the idea of the regulation (pay scales can only vary one order of magnitude, as Best said), I guess I have to wait and see if there's anything strange that may occur. As for "attracting people of such great business acumen", they have to make their living off producing something for society that people are willing to pay for in a non-monopolistic environment in order for it to be fair and in accordance to free market (rather than corporate) capitalism. So, if you put in the regulation of restricting the pay scales, number of levels between the highest guy and lowest guy, what we want to encourage is people are succeeding because they are adding value to society.

I had once pictured a society that reacted harshly against mega-corporations and they had highly punitive anti-corporate laws like:

• limiting pay scale differences
• limiting number of management levels
• banning private police/military powers (or making them subservient to the government's police/military powers)
• increased liability for owners (ie. more like partnerships, co-operative or sole proprietorship rather than having a level of indirection via a corporate entity)

The incubator fund is cheap is the real point. And it's a democracy and we've web 2.0 these days, so you can just have a bunch of guys pitch ideas in a Digg-style site and have people rank them and then the government gives out grant money to the top 10 with the stipulation of what we perceive as a better corporate set-up (or a cooperative).

I put the incubator fund at a small amount (millions of dollars, to like 10 million... for America it could be more like 50 to 100 million) so it wouldn't have any significant effect other than, "private corporations in every industry have to out compete start-ups". I'm basically trying to lower market entry barrier.

Unfortunately, governments tend to be run by businessmen. So in most cases they're also trying to maximize profit.

I like it in theory.

What I'm worried about is either a raise in "benefits and bonuses" that do exactly the same net result in practice, or the corporation emigrating to just not put up with it thus causing less jobs — though if they pack up and leave completely obviously someone gets to fill the gap over time.

Still, it sounds a hell of a lot better than most options I can think of, and I'd like to see how it goes over there. Most of what I'm worried about seems like it would show up in the short term.

Yup. One of em's a pretty close friend of my family.

The problem isn't that it causes inflation. it's that it causes inflation and no ground is gained whatsoever. The important part isn't wage, it's the ratio of wage vs. cost of living, and until you can stop the latter from rubberbanding right along with it nothing beneficial actually happens except we shoot ourselves in the foot with the global market.

edited 23rd Sep '11 1:31:21 PM by Pykrete

As I've say a lot, that's actually a good argument for communism, or at the very least, against a free market economy.

What that argument states is that business owners are able to declare their own profit ratios without any concern for things such as elastic demand or competition. I don't believe this is the case...well mostly. (I do think there are cultural issues where people are not quite rational when it comes to price and competition, but that's neither here nor there) But with competition, including the ability to walk away and say "No thanks!", this actually acts as a counter-weight to keep prices down what they otherwise would be.

I doubt you actually mean this, of course. But this is what that argument is actually saying economically speaking. Will prices rise some? Possibly. Depends on the business model really. Some businesses at the margin (which isn't all that many, even though theoretically it's supposed to be most of them) will be forced to raise prices, but most will only do it because the demand is there already. And in fact, they probably already HAVE raised prices to that level.

Look at it this way. Take a coffee place, who pays workers a wage of 10 dollars an hour, and each worker can serve 100 customers. They have prices that attract 1000 customers for a coffee that costs say 3 dollars. Now, assume the wages go up, so the employers raise their price to 4 dollars and now they get 800 customers, as well as lay off some workers because there's less customers that need to be served.

BUT!

If the coffee place just raised the price on its own, and laid off the workers beforehand, they'd be making even more profit. As such, if raising the wages "forced" them to be efficient, it's because they weren't running to maximum efficiency beforehand, at least a lot of cases that I can see.

And that's the point. By and large, the things that you're talking about, if they were economically viable they probably already have been done. And yes, rising wages, really does render certain jobs economically non-viable, but quite frankly, that's a good thing. That's what is supposed to happen, economically speaking. That's progress.

This is why "tax and spend" is nothing to me, compared to policies designed to maintain a competitive labor market. I think the fear of inflation is WAY overblown, and does much more harm than good.

If the right key players do it all at once, yes, they can do exactly that. Undercutting each other very much isn't in anyone's best interest because as soon as market prices equalize to be competitive and consumers spread out again, everyone is making less.

Again, if the inflation actually came as a cost of actually doing something useful that'd be another question. Inflation from raising minimum wage though is a step backward with zero forward, so that's a no go.

edited 23rd Sep '11 2:09:10 PM by Pykrete

You're talking cartel-type behavior here, I think. And while it's true, again, it's something that #1. modern economics kinda accounts for (this is where game theory comes in), and if it doesn't, again, #2. we're talking about the need for widespread regulation, and possibly price controls.

I do think it happens in some markets, actually, and in those markets I think they need to be regulated, or even nationalized (health insurance is a big one), but I think it's the exception rather than the rule. Maybe I'm too optimistic.

But I don't really like the alternatives. I'm not big on the massive welfare state, I'm not big on overt market controls for what should be competitive markets.

edited 23rd Sep '11 2:11:49 PM by Karmakin

And see, I'm all for regulating it when that happens. So yeah.

edited 23rd Sep '11 2:15:57 PM by Pykrete